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Posts Tagged ‘Digital Currencies’

Paul Krugman’s Hilarious 2015 Bitcoin Prediction and the Value of Intellectual Humility

Posted by M. C. on February 12, 2021

A $7,500 investment in bitcoin in 2015, when economist Paul Krugman described it as “bubble” rooted in “libertarian ideology,” today would be worth $1.2 million.

https://fee.org/articles/paul-krugman-s-hilarious-2015-bitcoin-prediction-and-the-value-of-intellectual-humility/?fbclid=IwAR25-qgFHz6Izee_loYXUwAd-N-SgUy5M1omV0R2dgr6N6lzPYECjx7bkBw

In 1998, Paul Krugman predicted that by 2005 it would be clear that “the Internet’s impact on the economy has been no greater than the fax machine’s.”

The prediction was so wrong and so widely circulated that Snopes has a page fact-checking the claim and affirming its veracity.

The internet is a vast place, but one would be hard-pressed to find another prediction that missed so badly. Which is why I was surprised to stumble across a 2015 prediction on bitcoin that whiffed just as wildly.

Coincidently (or perhaps not), this comment also comes from Krugman.

During a July 2015 roundtable discussion, Krugman was asked for his take on “disruptive digital currencies such as bitcoin.”

In a rambling two and a half minute response, Krugman described bitcoin as a currency rooted in “libertarian ideology,” a bubble that was just waiting to pop.

“It’s a technically sweet solution to a problem, but it’s not clear that problem has much economic relevance,” the Nobel Laureate explained.

The problem is, it’s clear Krugman didn’t understand those technical issues. He goes on to compare bitcoin to credit cards.

“If you’re looking for the idea that a currency doesn’t have to be something physical, it can be something virtual, that’s the system we already have,” he says. “If I want a way to make payments electronically, that’s, you know, credit cards.”

Krugman’s response suggests he had not actually studied bitcoin and didn’t really understand its value proposition or unique properties. Bitcoin has many of the same attributes as fiat money—it is easily transferable, divisible and fungible—but unlike fiat money, its supply is predictable and strictly limited.

Hubris among intellectuals isn’t exactly unheard of, but it’s a bit astonishing coming from Krugman, whose history is replete with whacky predictions and bad advice.

By design, bitcoin is increasingly difficult to create (“mine”). And, we know for a certainty that just 21 million bitcoins will be produced. This inherent scarcity makes bitcoin a far more durable form of currency than fiat money, an attribute that has nothing to do with credit cards.

Instead of discussing the attributes of bitcoin or even going into its weaknesses, Krugman mostly scoffs at cryptocurrencies and offers this bit of financial advice.

“Bitcoin looks like it really is a bubble in multiple senses,” Krugman says. “Certainly, [there’s] not a reason to hold that currency.”

If you listened to Krugman and decided to not buy bitcoin in 2015, you probably feel a bit like Blockbuster after turning down a $50 million offer to buy Netflix.

When Krugman made this prediction in July 2015, bitcoin was trading at roughly $300. On Thursday morning, bitcoin was trading at $47,500. This means that if you decided to ignore Krugman’s advice and buy 25 bitcoins for $7,500, you’d have nearly $1.2 million today.

To be fair to Krugman, predicting the future is hard. We live in a complex world with infinite moving parts. But we should acknowledge that.

Let’s look at it another way. Krugman was earning a $225,000 annual salary from City University of New York in 2015 (to study income inequality), a sum that does not include earnings from other ventures (book royalties, his New York Times column, etc.). If for one year Krugman bought bitcoin instead of stocks with ten percent of his income (pre-tax), he could have purchased 75 bitcoin for $22,500. That single investment would have netted him a $3.6 million profit.

To be fair to Krugman, predicting the future is hard. We live in a complex world with infinite moving parts. Our knowledge of the world—systems, choices, products, risks, etc.—is limited.

But we should acknowledge that. This awareness, the Nobel Prize winning economist F.A. Hayek pointed out, will in turn teach us a certain amount of intellectual humility.

“To assume all the knowledge to be given to a single mind…is to disregard everything that is important and significant in the real world,” Hayek wrote in The Use of Knowledge in Society.

Krugman’s response is stark contrast to how fellow progressive Noam Chomsky responded when asked about bitcoin during a 2015 interview.

Alas, admitting the limits of knowledge is not something Krugman is known for. And it comes through when he all but sneers when asked about bitcoin, provoking laughter from the audience and the moderator.

This is a stark contrast to how fellow progressive Noam Chomsky responded when he was asked about bitcoin during a 2015 interview. Chomsky expressed skepticism, but he also acknowledged he hadn’t studied bitcoin closely.

“My first mind is that I don’t know enough to answer,” Chomsky said. “I looked into it to an extent, and the guesses seem to be pretty uncertain.”

It’s a far more refreshing answer than Krugman’s glib take.

Hubris among intellectuals isn’t exactly unheard of, but it’s a bit astonishing coming from Krugman, whose history is replete with whacky predictions and bad advice that turned out to be rather embarrassing. This ranges from a 2002 plea to intentionally create a housing bubble to fight recession (how did that housing bubble work out?), to empirical failures of his macroeconomic models, to the aforementioned claim that the internet’s economic impact would be “no greater than the fax machines.”

Again, it’s okay to be wrong about things. We’re human, we all make mistakes. But recognizing this basic truth should breed humility, not arrogance, and the ability to admit when we’re wrong.

Krugman remains a crypto skeptic, evidenced by columns in 2017 and 2018, and that’s okay. At least it looks like he’s done more homework since then. His primary hang-up is the idea that bitcoin is “untethered” in contrast to gold (which has intrinsic value) and fiat money (which is backed by government promises).

“If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless,” writes Krugman.

This is true, of course, but it could also be said of any currency (even gold).

I’ll admit that I had similar skepticism about bitcoin for years. Its value as a flexible but durable currency designed to be scarce was elusive and difficult to fully believe.

I don’t feel that way anymore. The value proposition as a durable currency resistant to inflation is real, especially at a moment when fiat money looks precarious because of mass pumping.

I bought my first crypto this week. Time will tell if the investment was wise or foolish.

But I promise one thing: If I’m wrong, I’ll admit it

Jon Miltimore
Jon Miltimore

Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.

Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times. 

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A Mass Distancing From Government Is Necessary To Escape the Tyranny We Face – LewRockwell

Posted by M. C. on January 25, 2021

Secession is the natural right of all people, and can only be successfully achieved by individual dissolution from the state. It cannot be successful through any political process or voting that aims to amend the governing system into another form of government. Past history has certainly shown this to be the case. For if eliminating all government power leads to individual freedom, then rebuilding another governing structure that allows for certain powers over the people by the political class will only end in more tyranny.

The elimination of the dollar by the people is of vital importance, because the plan of the global power heads is to replace the dollar with digital currencies that can be completely controlled by the technocrats. Once in place, everyone will be able to be controlled, and all assets can be turned on or off based on behavior.

https://www.lewrockwell.com/2021/01/gary-d-barnett/a-mass-distancing-from-government-is-necessary-in-order-to-escape-the-tyranny-we-face/

By Gary D. Barnett

“Despite the popular idea of anarchists as violent men, Anarchism is the one non-violent social philosophy.… The function of the Anarchist is two-fold. By daily courage in non-cooperation with the tyrannical forces of the State and the Church, he helps to tear down present society; the Anarchist by daily cooperation with his fellows in overcoming evil with good-will and solidarity builds toward the anarchistic commonwealth which is formed by voluntary action with the right of secession.”

~ Ammon Hennacy. “The Book of Ammon,” (First published 1954 by Fortkamp)

Speaking of secession to the general population brings out first the idea of civil war, slavery, killing, and failure. This is the exact opposite of how secession should be viewed, but in the common American psyche, this is what has been purposely taught and mostly accepted by the masses. The attitude toward breaking away from tyrannical rule is therefore tainted; not by accident, but by design. The ruling class will always and forever defend aggressively against any separation from their rule, because they fully understand that secession is meant as a way for the people to protect their liberty from those in power that would strive to destroy it. While it is a simple concept, it is vastly misunderstood, and is certainly the only way to achieve true freedom. Perception in most cases leads to reality, so a change in perception about the moral right to be free is necessary in order to understand that the state is the enemy of the people.

Secession is the natural right of all people, and can only be successfully achieved by individual dissolution from the state. It cannot be successful through any political process or voting that aims to amend the governing system into another form of government. Past history has certainly shown this to be the case. For if eliminating all government power leads to individual freedom, then rebuilding another governing structure that allows for certain powers over the people by the political class will only end in more tyranny. That is why states seceding through the political process, but retaining political power at the state level will naturally fail. When people decide to separate from what is referred to as the “Union,” a further separation is mandatory if true liberty is to be won and sustained. This is why I have always advocated for total secession, even if incremental in its initial advancement, so that the final result would be that the people themselves actually control their own destiny.

The secession that occurred during the American Revolution did not go nearly far enough, for soon following the breaking away from the British Crown, the states formed a union that set up a centralized governing system, a system that was granted massive powers, and that proceeded to reduce freedom over the course of our history. The Southern fight for independence was bold and a great start, but the central government that had been built was able to defeat the idea of freedom by murdering American citizens in order to retain total power. This is why secession or removing government power can only be accomplished with individual unity, so that the resulting system does not allow for any central government, or any government that can claim authority over any individual.

To achieve today actual freedom from rule would be difficult in that the people have over time given total and complete power to this evil monster called the U.S. government. It controls at every level, including the very important matter of controlling all money and monetary policy. This allows the government to control the economy, and thereby control all people. In order to start the process of breaking away from government, the most important aspect of gaining freedom will be to take away the government’s power over money and money printing. In order to accomplish this, the masses must begin to use and print their own money, and refuse to use the state controlled and worthless fiat currency. Once again, this has to be done at the individual level by acting in concert with one another. Therefore, the division amongst this terribly confused population must be remedied so that we work together instead of against each other. This does not have to be universal, as smaller bands of people all around the country can make great advances in order to separate from the current system.

The requirements to gain freedom through distancing ourselves from government will necessarily mean that going back to a more fundamental lifestyle, at least temporarily, will have to take place. Our use and production of money will need to change, and our production and distribution of untainted and natural food will have to take precedent over this current system. Food quantity and quality are being manipulated and controlled by the very government and its corporate partners interested in population control (eugenics) through starvation, and the replacement of natural products with GMO alternatives controlled by the same claimed governing ‘elites’ that wish to control humanity. Personal farming, good seed stocks, local farmer’s markets, and less dependence on big agriculture will go a long way in protecting the health and minds of Americans.

The elimination of the dollar by the people is of vital importance, because the plan of the global power heads is to replace the dollar with digital currencies that can be completely controlled by the technocrats. Once in place, everyone will be able to be controlled, and all assets can be turned on or off based on behavior. Social scores will take on a whole new meaning, and a robot-like society, think transhumanism, will be created and can be sustained due simply to the state’s control of all assets of value, including money. Setting up many different private money systems of exchange, barter, and secure digital as well, all through voluntary participation, will allow for the people to gain control for themselves instead of relying on the corrupt and manipulated central banking federal system of money printing. By moving away en masse from this criminal government monetary system, the possibility of gaining independence escalates dramatically, and with more individual power concerning money, other aspects of freedom will naturally fall into place.

The end of currencies will take place when the direct control of money by central banking digitized systems is achieved. These plans are already being created, and are also being telegraphed in order to desensitize the public so that mass acceptance is more likely. If this critical stage is reached, there will be little if any ability to forestall the complete takeover of humanity.

So many other factors to consider in any quest for freedom are of great importance so that people can retain control of their body, minds, and of their very lives. It is vital to remember that everything that happens in government is planned in advance, is intentional, and is meant to achieve very nefarious agendas. This completely fraudulent Covid-19 scam was plotted for at least twenty years, and false virus pandemics as a way to control the general populace have been in play for decades. Therefore, ‘vaccines,’ biosecurity measures, surveillance, injectable operating systems that alter RNA and DNA, immunity passports, and restrictions at every level must be avoided at all costs. People must deny government mandates, must not comply with state orders, must not wear dehumanizing masks, and must attempt aggressively to do whatever is necessary to protect individual sovereignty.

In order to save us from certain slavery, secession is the answer to eliminating the massive power that has been attained by this horrendous government. Instead of considering secession as an impossibility due to the complicated nature of going about gaining independence through the state political process, consider simply the idea of removing all support for government and its edicts individually. All should be based on individual unity, as our numbers are incredibly large, and their numbers are incredibly small. Say no to every government order; get away from their money and monetary system at every opportunity. Refuse to obey mandates, protect your health and immune systems, refuse any injection of poison, open up every business in this country, and defend your freedom by whatever means necessary. That is the way to regain American integrity, and to stop this planned oppression and takeover of humanity.

“An anarchist is someone who doesn’t need a cop to make him behave. Anarchism is voluntary cooperation with the right of secession. The individual or the family or the small group as a unit instead of the State.”

~ Ammon Hennacy. “The Book of Ammon,” (First published 1954 by Fortkamp)

Source links:

https://mises.org/library/secession-specifically-american-principle

The Best of Gary D. Barnett Gary D. Barnett [send him mail] is a retired investment professional that has been writing about freedom and liberty matters, politics, and history for two decades. He is against all war and aggression, and against the state. He recently finished a collaboration with former U.S. Congresswoman, Cynthia McKinney, and was a contributor to her new book, “When China Sneezes” From the Coronavirus Lockdown to the Global Political-Economic Crisis.” Currently, he lives in Montana with his wife and son. Visit his website.

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Central Bank Digital Currencies and the War on (Physical) Cash | Mises Wire

Posted by M. C. on December 7, 2020

At the end of the day, central bank digital currencies are all about control, not meeting consumer demand. The ECB admits as much at several points in their report. Here is just one instance: If people are really demanding a digital euro, why would it have to be assigned legal tender status in order for it to be accepted, as the authors of the report clearly state would be necessary (p. 33)? The only scenario where introducing a CBDC makes sense is in order to phase out the use of physical cash in order to be able to impose whatever negative interest rate regime the central bankers in charge judge necessary. Helicopter money, restrictions on cash holding, and negative interest rates are all part of the bundle of desirable policies that can only—or most easily—be achieved with digital currencies fully controlled by the issuing central banks.

https://mises.org/wire/central-bank-digital-currencies-and-war-physical-cash

Kristoffer Mousten Hansen

Twenty twenty is a year dominated by bad news. While governments around the world have imposed extremely destructive restrictions on economic life and promise a “Great Reset” that amounts to a great leap forward into the socialist future, central bankers have advanced plans for implementing central bank digital currencies (CBDCs). These may arrive as early as next year. Yet what is the motivation behind this innovation? Reports recently published by the Bank for International Settlements1 and the European Central Bank2 provide part of the answer. These publications provide fascinating insight into the theories and ideologies driving central bankers in their pursuit of CBDCs.

Monetary Policy? Moi?

One perhaps surprising theme in both reports is the disavowal of any monetary policy behind plans for introducing CBDCs. The BIS report claims that “[m]onetary policy will not be the primary motivation for issuing CBDC” (p. 8) and the ECB report notes that a “possible role for the digital euro as a tool to strengthen monetary policy is not identified in this report” (p. 3). One might first of all suppose that introducing a new form of money would by definition amount to monetary policy, at least in a broad sense, and secondly perhaps find it a tiny bit weird that institutions dedicated to researching and implementing monetary policy would not have considered the potential effects of a new form of money in light of its effects on policy. But what is really striking is that both reports—and especially the one issued by the ECB—at great length detail the implications for monetary policy of CBDC. True, they say they don’t, but looking beyond the executive summary and paying attention to what is written in the report itself puts the lie to that claim.

In order to see this, we only need to look at the key features the central bankers identify as desirable in a CBDC: it should be interest bearing, and it should be possible to cap how much each individual can hold. Both measures are clearly aimed at supporting monetary policy. The cap on holdings forces people to spend their money, driving either price inflation or investment in financial assets, and by making the CBDC interest bearing (or remunerated, in the language of the ECB) it becomes a tool of setting and passing on policy rate changes, including negative interest rates.

The ECB’s Report on a Digital Euro in particular goes on at great length about the need to limit or disincentivize “the large-scale use of a digital euro as an investment” (p. 28). The reasoning behind this position is crystal clear: since monetary policy has driven interest rates into negative territory, the ECB should not allow large-scale holding of digital euros, since investors would then, quite sensibly, chuck their holdings of negative-yielding bonds and seek a safe haven in digital euros—that is, if they can hold them at no cost. Similarly, the ECB is averse to letting people convert their bank deposits into digital euros (p. 16), which would reside in their individual wallets rather than in a bank account. Indeed, the horror of what the BIS and ECB reports call “financial disintermediation” looms large in the minds of central bankers: if people keep their money outside of banks, these will have less money to lend out, thereby increasing borrowing costs. In the words of the BIS report, they are concerned that

a widely available CBDC could make such events [i.e., bank runs] more frequent by enabling “digital runs” toward the central bank with unprecedented speed and scale. More generally, if banks begin to lose deposits to CBDC over time they may come to rely more on wholesale funding, and possibly restrict credit supply in the economy with potential impacts on economic growth. (p. 8)

Of course, Austrian economists since Ludwig von Mises3 understand that “financial disintermediation” can really be a blessing. In the context of digital euros, all it means is that people would hold the amount of cash they deemed desirable outside the banks. They would only make true savings deposits in banks, i.e., they would only surrender money that they did not want instant access to. Under such circumstances, banks would be incapable of expanding credit by issuing unbacked claims to money; they could only make loans out of the funds their customers had explicitly made available for that purpose. This would not only result in a leaner or sounder financial system, it would also avoid the problems of the perennially recurring business cycle. And contrary to what the central bankers fear, the supply of credit would not be restricted, it would simply be forced to correspond to the supply of real savings in the economy. This, unfortunately, is an understanding of economics completely alien to central bankers.

Negative Interest Rates

One aim in introducing CBDCs that is only hinted at is the possibility of imposing even lower negative interest rates. In recent years monetary economists4 have increasingly discussed the problem of the “zero lower bound” on interest rates: the fact that it is impossible to set a negative interest since depositors in that case would simply shift into holding physical cash. When manipulating the interest rate is the main policy tool of central banks this is obviously a problem: How can they work their alchemy and secure an acceptable spread between the main policy rates and the market rate of interest when interest rates are already very low? Allowing for the cost of holding physical cash, –0.5 percent seems to be about as low as they can go.

With a centrally controlled digital currency this problem would disappear. The central bank could set a limit on how much each person and company could hold cost free, and above this limit, they would have to pay whatever negative interest rate (or “remuneration,” as the ECB insists on calling it) is consonant with central bank policy. In this way, holding cash would not obstruct monetary policy, as the cash holdings would be fully under the control of the central bank.

There is just one problem with using CBDC in this way: it only works if physical cash is outlawed. Otherwise, physical cash would still simply play the role it does today, i.e., as the most basic and least risky way of holding one’s wealth and of avoiding negative interest rates. The BIS report clearly identifies this problem (p. 8n7), as does the ECB (p. 12n18): a CBDC could help eliminate the zero lower bound on interest rates, but only if physical cash disappeared. So long as physical cash remains in use, the zero lower bound cannot be breached.

But the People Demand It!

However, people might of their own accord come to the rescue of the world’s central banks, sorely beset as they are by the zero lower bound. At least according to Benoît Coeuré, head of the BIS Innovation Hub (the group tasked with researching CBDC), plenty of people want a central bank digital currency. The ECB also sees the decline in the use of physical cash in favor of other means of payment as one of the main scenarios that would require the issue of a digital euro (p. 10).

Now, while some people might like CBDC, there is really no reason to believe, notwithstanding monsieur Coeuré’s anecdotal evidence, that there is widespread demand for central bank digital currency. The ECB admits as much when they write that physical cash is still the dominant means of payment in the euro area, accounting for over half the value of all payments at the retail level (p. 7). But Coeuré does not need to go far to see the continuing relevance of cash: in 2018 researchers at the BIS itself concluded that cash, far from declining in importance, was still the dominant form of payment.5 More recently, a study in the International Journal of Central Banking showed that cash usage is not only not declining, but even increasing in importance.6

Be that as it may, the central bankers are certainly right that there is an increased demand for digital payment solutions and for cryptocurrencies. However, it is erroneous to conclude from this that therefore a central bank digital currency is demanded. Demand for a payment solution is not the same as demand for a new kind of money. It simply means that people demand payment services that allow them to more cheaply transact with each other. Such services are plentifully provided by companies such as Visa, Mastercard, Paypal, banks, and so on and so forth. There is no reason to believe that central banks need to provide this service nor that they could do it better than private companies and banks, and it is simply a mistake to equate demand for such services with demand for a money.

The mistake in the case of cryptocurrencies is even more egregious. When people hold bitcoin or another cryptocurrency, it is not because their heartfelt demand for a CBDC has to go unfulfilled and this is their closest alternative. On the contrary, people want to own bitcoin precisely so they can avoid the negative interests imposed on the established banking system and the risks of holding inflationary fiat money. Introducing a CBDC would not mitigate those risks, but rather add to them, as the central bank would assume total control of the money supply through it and the attendant abolition of physical cash. The felt need for inflation hedges and the desire to escape central bank control, including as it does negative interest rates and caps on how much cash one could hold, would only increase.

It’s All about Control

At the end of the day, central bank digital currencies are all about control, not meeting consumer demand. The ECB admits as much at several points in their report. Here is just one instance: If people are really demanding a digital euro, why would it have to be assigned legal tender status in order for it to be accepted, as the authors of the report clearly state would be necessary (p. 33)? The only scenario where introducing a CBDC makes sense is in order to phase out the use of physical cash in order to be able to impose whatever negative interest rate regime the central bankers in charge judge necessary. Helicopter money, restrictions on cash holding, and negative interest rates are all part of the bundle of desirable policies that can only—or most easily—be achieved with digital currencies fully controlled by the issuing central banks.

Ironically, far from buttressing the role of central banks and government fiat money, imposing a CBDC may have the completely opposite effect. Replacing physical cash with a CBDC would only strengthen the undesirable qualities of fiat money and further hamper a free market in money and financial services, increasing the demand for alternatives to government money, such as gold and bitcoin.

  • 1. Bank of Canada, European Central Bank, Bank of Japan, Sveriges Riksbank, Swiss National Bank, Bank of England, Board of Governors of the Federal Reserve, and Bank for International Settlements, CBDC: Central Bank Digital Currencies: Foundational Principles and Core Features (N.p: Bank for International Settlements, 2020), https://www.bis.org/publ/othp33.htm.
  • 2. European Central Bank, Report on a Digital Euro (Frankfurt am Main: European Central Bank, October 2020), https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html.
  • 3. Ludwig von Mises, The Theory of Money and Credit, trans. H. E. Batson (New Haven, CT: Yale University Press, 1953), p. 261ff.
  • 4. See, e.g., Marvin Goodfriend, “Overcoming the Zero Bound on Interest Rate Policy,” Journal of Money, Credit and Banking 32, no. 4 (2000): 1007–35.
  • 5. Morten Bech, Umar Faruqui, Frederik Ougaard, and Cristina Picillo,”Payments Are A-Changin’ but Cash Still Rules,” BIS Quarterly Review (March 2018): 67–80.
  • 6. Jonathan Ashworth and Charles A.E. Goodhart, “The Surprising Recovery of Currency Usage,” International Journal of Central Banking 16, no. 3 (2020): 239–77.

Author:

Kristoffer Mousten Hansen

Kristoffer Mousten Hansen is a research assistant at the Institute for Economic Policy at Leipzig University and a PhD candidate at the University of Angers. He is also a Mises Institute research fellow. 

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